What is earnest money, and can I lose it?

Understand the purpose of an earnest money deposit

Earnest money is a deposit that shows a buyer’s intention to complete a home purchase. According to NAR, the money is typically delivered after an offer is accepted and held by an escrow holder until closing or another authorized disposition. The deposit amount and due date are established by the agreement. Earnest money is not the same as your down payment. If the sale closes, the deposit is generally credited toward the down payment or closing costs. The amount can vary based on local practices, the property, and the terms of your offer. A larger deposit may signal commitment, but it also increases the amount of money at stake.

Know when the deposit may be refundable

Whether you can recover earnest money depends on the purchase agreement and why the transaction ends. NAR explains that buyers may be entitled to a return when properly exercising certain contingencies, such as inspection or financing provisions. A seller’s failure to meet contractual obligations may also affect the outcome. However, a buyer who simply changes their mind, misses a required deadline, or defaults on the agreement could risk losing the deposit. Refunds are not automatic in every dispute, and releasing escrow funds may require the parties’ agreement or another authorized process.

Follow deadlines and protect the funds

Read the earnest money provisions before signing. Confirm the amount, payment instructions, escrow holder, deadlines, and circumstances in which the deposit may be retained or returned. Keep proof of delivery and ask questions immediately if a transaction problem arises. Wire fraud is another concern. NAR recommends independently verifying payment instructions with a trusted telephone number rather than relying on unexpected emails. A Pennsylvania real estate attorney can explain the agreement’s default and refund provisions. Understanding those terms early makes it easier to negotiate confidently without putting money at unnecessary risk.

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Sources

National Association of REALTORS®: Consumer Guide: Escrow and Earnest Money; Consumer Guide: How to Protect Against Real Estate Wire Fraud

*Earnest money rights, escrow procedures, and defaults depend on contract terms and law. Consult a qualified Pennsylvania real estate attorney for legal questions. Includes AI-generated content.